Gen Z, crypto and getting on the property ladder  

In recent years, the financial landscape has witnessed a significant shift with the rise of Gen Z investors, (those aged 18-25), who are actively participating in the world of investments. In May, the US Investor Education Foundation FINRA released a research study on investment trends among Gen Z - those aged 18-25. The study examined attitudes and behaviours around investing among young people in the US, UK and Canada, and compared Gen-Z investors to their older millennial (26-41) and Gen-X (42-57) counterparts.

Two things stood out in the statistics for the UK. The first is that half (50 per cent) of Gen Z investors own cryptocurrency. Furthermore, around 20 percent of Gen Z investors began investing before they were 18, well ahead of millennials (five percent) and Gen X (three percent).

The second key statistic is that 48 per cent of Gen Z investors said their goal of investing was to purchase property. Getting on the housing ladder was more important to Gen Z than having money to travel or securing an additional income source outside of their main job.

Currently, Gen Z represents around 15 per cent of the UK’s population, according to a report published this year by global consultancy Mintel, equivalent to roughly 10 million individuals.

Given that the Financial Conduct Authority estimates that around nine per cent of the UK adult population now owns digital assets, an approximate calculation suggests Gen Z makes up more than two-thirds of crypto investors in the UK. And a good proportion of those are expressly using their crypto activity to access the housing ladder.

Not only, therefore, are younger generations driving crypto adoption in the UK. They are also generating demand in the housing market.

Proof-of-funds challenges

But the challenge for crypto investors of all demographics isn’t just about generating enough funds for a deposit or an outright property purchase. The difficulty lies in proving how you generated those funds in the first place.

Satisfying anti-money laundering controls regarding the origin and legitimacy of crypto wealth has been a consistent stumbling block for crypto investors.

Digital assets almost always attract a ‘high-risk’ categorisation within regulated firms.  This means clients with digital asset exposure often trigger enhanced due diligence checks across regulated services.

Obligations in place for solicitors mean that comprehensive source of wealth checks on property purchases are always required. That requires fully understanding the client’s crypto journey. But how does that process look, considering the apparent challenges involved in analysing digital assets?

To a non-expert crypto can feel intimidating, complex, and awash with fraudsters. Just mentioning ‘crypto’ or ‘blockchain’ can elicit trepidation about accepting a client.

So, when a young first-time buyer discloses their source of funds as crypto earnings, alarm bells start to ring.

Where a client has disclosed exposure to digital assets, the explanation can often feel complicated. Part of the bigger challenge is awareness that wealth creation in crypto is unlike any other traditional assets.  

Investors can generate significant returns in an extremely short space of time in crypto. They often do that through unfamiliar means, such as ‘mining’, ‘staking’ or ‘DeFi’.  And in some cases, the initial investment is extremely small when compared to the wealth generated.

Cases we’ve undertaken at Hoptrail can (and have) involved returns in the millions of pounds from initial investments in the low thousands of pounds – all within a year.  The profile of these investors also breaks the expected mould: they’re students, builders, nurses, young professionals.

In truth there’s nothing wrong with any of this, it’s just different. And it is something that traditional regulated firms will need to grapple with as Gen Z matures and more property transactions are funded - entirely or in part - from crypto proceeds.

Blockchain as a compliance tool

In fact, proving source of wealth on the blockchain is arguably easier - and can be done more rigorously - than checks on traditional funding sources such as shares, property, or inheritance.

In essence, the blockchain is a fancy term for a big spreadsheet.  That spreadsheet contains every single transaction that has ever been done, along with the addresses of the sender and recipient, the amounts and values transacted, and the timestamps of those trades.

More to the point, its publicly available. This means that data can be independently verified.  All investor’s transactions in the crypto world are recorded for all to see. The fact that the blockchain is tamper-proof adds inherent credibility and reliability to any analysis obtained from it.

Crypto is barely more than a decade old.  In most instances, source of wealth requirements are contained in a few key pieces of publicly available information. Often this required rolling back a short distance, perhaps two, three, or five years to capture the data needed.

Working with younger investors to ensure that data is obtained is key, not just to run the compliance checks, but to get comfortable with your client’s activities.

Most crypto investors understand that the blockchain is not an anonymous black hole.  It is an extremely powerful compliance tool, and one that is readily equipped to empower AML checks and facilitate onboarding. 

Wielding the blockchain in the right way can empower firms to provide efficient, thorough legal and financial services for future generations. So, the next time a student or a nurse approaches seeking to purchase property with crypto proceeds, don’t write them off. Not only are they just as legitimate as any other purchaser. They can rely on the blockchain to prove it too.

Henry Burrows is the CEO of Hoptrail hoptrail.io

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